Social Security Cost-of-Living Increase Likely to Be Around 1.5%

Social Security’s annual cost-of-living adjustment is likely to be around 1.5%, according to economists’ estimates, a small increase that reflects low inflation amid slow economic growth.

The official announcement, calculated using the consumer price index, is delayed due to the government shutdown. The September CPI report, which had been due out at 8:30 this morning, contains the final bits of data the Social Security Administration uses to determine new benefit levels.

The new payments normally begin in January. The increase was 1.7% last year, a bump that pushed average monthly benefits for retired workers to $1,261 from $1,240.

Economists aren’t waiting for the official release to make their own estimates for 2014.

Dean Baker, co-director of the Center for Economic and Policy Research, expects the COLA will end up being either 1.5% or 1.6%. Food and energy prices, often volatile, are wild cards but other components of inflation have been fairly steady this year, he says.

Polina Vlasenko, a research fellow at the American Institute for Economic Research, a Great Barrington, Mass.-based think tank, estimates a COLA of 1.4% to 1.6%.

Both economists caution, though, that standard CPI isn’t the best way to track how retirees spend.

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“The index is … not designed to reflect what seniors are actually paying,” Ms. Vlasenko said. “It covers mostly people who are working.”

Health care, for example, can account for a bigger share of spending among seniors. Prices for medical-care services were up 3.1% year over year in August, a much faster pace than overall prices.

Transportation and education, on the other hand, often accounts for a smaller share of household spending among retirees.

A better gauge may be the Labor Department’s “Experimental CPI for Americans 62 Years of Age and Older,” which measures the same basket of goods and services but gives them different weights.

Mr. Baker estimates that the experimental CPI would show a rate of inflation that is 0.1 to 0.2 percentage point higher than the standard CPI this year. That would leave Social Security adjustments lagging the actual inflation rate for seniors.

Ms. Vlasenko examined the two indices during the past 10 years and found some variation but only minimal difference over the decade. In some years the broader index is higher, in others the experimental index is higher.

“It just so happens that they canceled each other out over the past 10 years,” she said. “Of course, there is no guarantee of that going forward.”

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